The European Banking Authority (EBA) in accordance with its Pillar 2 Roadmap, published in April 2017, launched today a public consultation to review three guidelines aimed at further enhancing institutions’ risk management and supervisory convergence in the supervisory review and examination process (SREP). The revisions focus on stress testing, particularly its use in setting Pillar 2 capital guidance (P2G), as well as interest rate risk in the banking book (IRRBB). The consultations on all three guidelines run until 31 January 2018.

In particular, the publication includes:

an update of the EBA guidelines on common procedures and methodology for Supervisory Review and Evaluation Process (SREP Guidelines);

an update of the EBA guidelines on the management of interest rate risk arising from non-trading activities (IRRBB Guidelines); and

an update of the EBA guidelines on institutions’ stress testing.

The comprehensive EU SREP framework, which was introduced by the EBA in 2014, is now well established and in use by supervisors across the EU. Following the global regulatory developments, as well as the EBA’s supervisory convergence assessments, specific changes are needed to reinforce the framework as set out in the EBA’s Pillar 2 Roadmap.

The overall SREP framework and the Guidelines remain intact and the consultation is only focused on the elements being updated. In particular, the revisions enhance the requirements for supervisory stress testing and explain how stress testing outcomes will be used in setting P2G. The guidelines have also been updated with assessments of internal governance based on the recently revised EBA Guidelines on internal governance.

The revised IRRBB Guidelines reflect developments in the Basel Committee on Banking Supervision (BCBS) and clarify internal governance and supervisory outlier tests requirements during the first phase of the European implementation of the Basel standards. The revisions are, therefore, intended to act as a bridge to the future requirements, which will be incorporated in the CRD V/ CRR2 framework.

The revised guidelines on institutions’ stress testing update the EBA’s 2010 guidelines to reflect industry practices and the incorporation of recovery planning. The revised guidelines also feature a common taxonomy on stress testing.

In accordance with the Pillar 2 Roadmap, these three guidelines are being consulted in parallel and are expected to be implemented by 1 January 2019 for the 2019 cycle of SREP and joint decisions on institution-specific prudential requirements.

Consultation process

Responses to the consultations can be sent to the EBA by clicking on the following links:

•Click here to respond to the consultation on common procedures and methodologies for SREP

•Click here to respond to the consultation on institutions’ stress testing

All contributions received will be published after the consultation closes, unless requested otherwise. The deadline for the submission of comments is 31 January 2018.

A public hearing on all three guidelines will take place at the EBA premises on 16 January 2018 from 10:00 to 13:00 UK time.

Legal basis

The EBA guidelines on common procedures and methodology for Supervisory review and Evaluation Process (SREP) have been developed in accordance with Article 107(3) of Directive 2013/36/EU and specify the common procedures and methodologies for the functioning of the supervisory review and evaluation process (SREP) referred to in Articles 97 and 107(1)(a) of Directive 2013/36/EU. In addition, these guidelines aim at providing common methodologies to be used by competent authorities when conducting supervisory stress tests in the context of their SREP as referred to in Article 100(2) of Directive 2013/36/EU.

The EBA guidelines on the management of interest rate risk arising from non-trading activities have been developed in accordance with Article 16 of Regulation (EU) No 1093/2010 and Article 98(5) of Directive 2013/36/EU. These guidelines specify the systems to be implemented by institutions for the identification, evaluation and management and governance arrangements of IRRBB; sudden and unexpected changes in the interest rate in accordance with Article 98(5) of Directive 2013/36/EU for the purposes of SREP; and general expectations for the identification and management of credit spread risk in the non-trading book (CSRBB).

The EBA guidelines on institutions’ stress testing have been developed in accordance with Article 16 of Regulation (EU) No 1093/2010 and update the existing EBA Guidelines on stress testing form 2010. These guidelines aim at providing common organisational requirements, methodologies and processes for the performance of stress testing by institutions as part of their risk management processes.